International Seaways Inc (INSW) 2021 Q4 法說會逐字稿

Hello, and welcome to the International Seaways Fourth Quarter and Full Year 2021 Results. My name is Katie, and I'll be coordinating your call today. (Operator Instructions) I will now hand over to your host, James Small, our General Counsel to begin. James, Please go ahead.

Thank you. Good morning, everyone, and welcome to International Seaways' Earnings Release Conference Call for the Fourth Quarter and Fiscal Year 2021.

Before we begin, I would like to start off by advising everyone with us on the call today of the following. During this call, management may make forward-looking statements regarding the company or the industry in which it operates.

Those statements may include, without limitation, the following topics: outlooks for the crude and product tanker markets; changes in oil trading patterns; forecasts of world and regional economic activity and the demand for and production of oil and other petroleum products; the effects of the ongoing coronavirus pandemic; the company's strategy; the anticipated cost savings and other synergies and benefits from our merger with Diamond S; any plans to issue dividends; our prospects; purchases and sales of vessels; construction of newbuild vessels and other investments; anticipated and recent financing transactions; expectations regarding revenues and expenses, including vessel, charter hire and G&A expenses; estimated bookings and TCE rates for periods in 2022; estimated capital expenditures for periods in 2022; projected scheduled dry-dock and off-hire days; the company's consideration of strategic alternatives; the company's ability to achieve its financing and other objectives; and other economic, political and regulatory developments around the world.

Any such forward-looking statements take into account various assumptions made by management based on a number of factors, including management's experience and perception of historical trends, current conditions, expected and future developments and other factors that management believes are appropriate to consider in the circumstances.

Forward-looking statements are subject to risks, uncertainties and assumptions, many of which are beyond the company's control, which could cause actual results to differ materially from those implied or expressed by the statements.

Factors, risks and uncertainties that could cause International Seaways' actual results to differ from expectations include those described in our forthcoming 2021 Annual Report on Form 10-K and in other filings that we have made or in the future may make with the U.S. Securities and Exchange Commission.

Now let me turn the call over to our President and Chief Executive Officer, Ms. Lois Zabrocky. Lois?

Thank you very much, James. Good morning, everyone. Thank you for joining International Seaways' earnings call to discuss our fourth quarter and our full year 2021 results. As we hold this call this morning, Russia continues its invasion into the Ukraine, all of those affected by the violence and all of those in danger's way are in our thoughts this morning.

Turning to Seaway's results. 2021 was a pivotal year for International Seaways as we strengthened our market position. We enhanced our ability to capitalize on an improving tanker market this year and to create enduring value for our shareholders.

Oil demand has returned. Projections are for refinery runs to increase by 4 million barrels per day from March to July of this year. This increased pull from demand feeds our optimism for an improved tanker rate environment. Our ships are employed in top-performing commercial pools. With our significant operating leverage, we will take advantage of favorable market development.

Inventories are now at the lowest level since 2014, and oil demand, as we mentioned, is recovering. Inventory draws have continued. Oil production is expected to increase in 2022. OPEC has affirmed their April cuts will unwind at 400,000 barrels per day. This pace should continue for the remainder of 2022 with 400,000 barrels per month. Non-OPEC, United States, Canada, Brazil and Guyana, should add supply in 2022 at about 1.7 million barrels per day.

Please turn to Slide 4, where we summarize our momentous year. This is highlighted by substantial return to our shareholders. The completion of our transformational merger and our success optimizing the fleet is strengthening our balance sheet and our capital structure. Since becoming an independent tanker company over 5 years ago, we have built a track record executing an accretive and balanced capital allocation strategy in order to maximize value for our shareholders.

In addition to purchasing ships at cyclical lows, a key component of our proven approach has been returning capital to our shareholders, and this is outlined in the first series of bullets. We're proud to have returned $58 million to shareholders in 2021. This reflects $17 million of share repurchases in the fourth quarter, a regular quarterly dividend of $0.06 as well as the $31.5 million of special dividends that we paid in the third quarter.

Combined with $37 million of returns in 2020, Seaways has returned nearly $95 million to shareholders over the last 2 years, amidst challenging tanker market conditions and, importantly, while maintaining a very strong balance sheet.

Turning to the next series of bullets on the upper right of the slide, we completed our merger with Diamond S in 2021, nearly doubling our net asset value and tripling our fleet size. Seaways is now the largest U.S. listed diversified tanker company. We expect to realize over $35 million in synergies in 2022.

During our integration efforts, the team did a deep dive into cost structure and historic performance, which resulted in a refinement of our estimates. These synergies represent a permanent benefit to consolidation.

After the merger, we implemented a fleet optimization program. This capitalized on healthy secondhand values and strong steel demand. This has resulted in the sale or recycling of 16 older tankers with an average age approximating 16 years. We lowered the age of our profile of our fleet to below 9 years and received aggregate net proceeds of $92 million after all costs, including debt repayment of approximately $74 million.

We have bolstered our Panamax presence in our strong earning niche joint venture, Panamax International. Earlier this week, we took delivery of the Seaways Eagle, a 2011-built LR1. And next week, we will deliver to the same counterparty, a 2010-built MR. The Seaways Eagle will join the Panamax pool where we have earned over $22,000 per day in the first quarter to date.

We also agreed to sell a 2004-built Panamax for recycling in February. In line with our ESG commitment to responsible recycling, all recycled vessels have been processed under our oversight and in accordance with the Hong Kong Convention.

Moving to the bottom left-hand column of the slide. We have maintained a strong balance sheet, further positioning Seaways for long-term success. We've made significant progress, enhancing our capital structure and our financial flexibility this year, including a number of attractive financing initiatives that Jeff will get into more detail on in his portion of the call.

Our net loan-to-value of 45% is balanced with largely senior debt, some leases with purchase options and a small, fixed bond. With year-end total liquidity of approximately $240 million we have operated effectively in challenging tanker markets.

Turning to our financial results. Our fourth quarter net loss was $29 million or $0.57 per share, excluding merger-related costs and gains on vessel sales. Our full year net loss was $86 million or $2.24 per share, excluding the same items. In a sustained weak rate environment, we generated adjusted EBITDA of $12 million for the fourth quarter and $40 million for the year.

Turning to Slide 5. While the situation in Russia and the Ukraine is creating tremendous volatility in energy markets, we address the fundamental tanker underlying drivers, providing a broad overview of the current oil supply and demand balance.

With the fading impact of the pandemic on global oil demand, projections indicate 2022 oil demand increasing at over 3 million barrels per day to nearly 101 million barrels per day in the end of 2022. Oil production is expected to increase to all-time highs in 2022. We anticipate boosted production in the West led, as mentioned, by the United States, Canada and Brazil and Guyana, contributing to this growth.

While OPEC+ has fallen short of its production targets by country, compliance may be challenged in a very high oil price environment as today. Incremental production, based on these dynamics, is likely to be moved by sea. This increases the demand for tankers. We are closely watching the outcome of negotiations as the lifting of Iranian sanctions could increase commercial oil supply by over 1 million barrels per day by the end of the year. And this would reduce tanker supply, which we'll discuss in a moment.

Looking at the bottom right chart, inventories have been reduced to their lowest levels in 7 years, providing 60 days of forward demand cover. With oil supplies from Russia struggling to find buyers, Western grades such as WTI and Brent are in strong demand. We are seeing U.S. crude exports to Europe and even the long hauls to the Far East that we've been missing in the marketplace.

On Slide 6, we turn to vessel supply. As you can see in the bottom left chart, the global fleet has grown 3.8% since the start of the pandemic. At the same time, the average age of the tanker fleet has increased to nearly 12 years on average. We continue to believe recycling has the potential to limit fleet growth, particularly as we see recycled volumes increase in the latter half of 2021 and into early 2022. Recycling values are at historic highs after adjusting for inflation.

In terms of sanctions on Iranian oil, because the sanctioned trades are largely serviced by older vessels, we expect the removal of sanctions would lead to the recycling of these assets that are trading outside the normal international markets.

The overall tanker order book stands at 7% by deadweight. This is the lowest level ever relative to the size of the fleet and several factors continue to limit supply. Foremost with reputable shipyards filled with contracts for other shipping sectors, the earliest newbuilding slots are often in late 2024 or in 2025.

Secondarily, ordering has been tempered by uncertainty around future environmental regulations. And finally, newbuilding prices are near all-time highs, and this has also had the effect of limiting tanker owners from ordering.

I would now like to turn the call over to Jeff and he'll give us a further dive on the financial review. Jeff?

Thanks, Lois, and Good morning, everyone. Let's move directly to reviewing the fourth quarter results in more detail. Before turning to the deck, let me just quickly summarize our consolidated results.

In the fourth quarter, we generated an adjusted EBITDA of $11.9 million, and net loss for the quarter was $34 million or $0.68 per diluted share compared to $116.9 million or $4.18 per diluted share in the fourth quarter of 2020.

However, excluding the impact of the disposal of vessels, including impairments, loss on extinguishment of debt, write-off of deferred financing costs and merger-related costs, aggregating $5.1 million, the net loss would have been -- was $28.9 million or $0.57 per diluted share.

Now if you could turn to Slide 8. This slide summarizes the year-over-year results of our business segments -- for the fourth quarter located in the top half of the slide and full year at the bottom half of the page. The decrease in Q4 and last 12 months revenue and EBITDA primarily resulted from the impact of lower average blended rates in both crude oil and product sectors.

Now if we can turn to Slide 9. We provide a fourth quarter review and first quarter 2022 earnings update as of this point. For bookings in Q1 thus far, we booked 64% of our available spot days for our VLCCs at an average of approximately $12,400 per day; 77% of our available Suezmax spot days at an average of $12,800 per day; 68% of available Aframax/LR2 spot days at an average of $12,800 per day also; and 73% of available Panamax spot days at an average of approximately $22,800 per day.

Turning to the product side. We booked 68% of our first quarter MR spot days at an average of approximately $12,700 per day and 72% of our handysize spot days at an average of approximately $14,300 per day.

I'd like to add that these rates should not be construed as guidance for the full quarter with global geopolitical events evolving rapidly in a market subject to significant change in the immediate term.

Turning to Slide 10. The estimated cash cost TCE breakevens for the forward 12 months beginning January 1 are illustrated on this slide. International Seaways' overall breakeven rate is estimated to be $17,200 per day for the next 12 months. As we always provide, these are all-in daily costs that our fleet must earn to cover vessel operating costs, drydocking costs, cash G&A expense and debt service costs, which means scheduled principal and interest expense.

At this point, I'd also like to provide cost guidance for the year for your modeling purposes. For this year 2022, we expect regular daily OpEx, which includes all running costs, insurance, management fees and similar related expenses for our various classes to be as follows: for VLCCs, $9,000 per day; for Suezmax, $7,600; for Aframax, $8,200 per day; for Panamax, $7,900; for MR, $7,200; and for handysize, $7,200 per day also.

We expect dry-dock and CapEx expenses to be $41.2 million and $34.4 million, respectively. These costs are related to ballast water treatment systems and other upgrades in anticipation of 2023 EEXI energy efficiency requirements. For details on projected drydock CapEx and off-hire days by quarter, you can refer to Slide 17 in the appendix for an update.

Continuing with cost guidance, we expect 2023 interest expense to be approximately $40 million to $45 million. For the year, we expect cash G&A to be in the region of $31 million. And finally, we expect about $15 million in equity income and approximately $113 million for depreciation and amortization.

Now if I can ask you to turn to Slide 11. We highlight the $25 million in cost synergies we expect to realize this year in connection with our merger last year with Diamond S.

At the bottom of the slide, you'll see an illustration of the general and administrative synergies totaling more than $20 million. This includes over $15 million in savings related to the consolidated management team and Board and other public company expenses such as audit fees, $3 million based on other office and administrative savings and $2 million as a result of the termination of the Capital Ship Management contract in connection with the merger.

The remaining $5 million in cost synergies are related to OpEx with $3 million in savings of technical management fees and $2 million based on consolidating insurances. These cost synergies are tangible savings to expenses that would have been incurred if the 2 companies were separate. There's a natural ebb and flow as to timing of these expenses, but we are very confident in saying that these will be realized in 2022.

Finally, given the historical performance of pools compared with other commercial management, we believe the pools in which we now deploy our vessels, with the benefit of greater scale, will generate over $10 million of revenue synergy compared to the rates earned by these vessels premerger.

To be clear, we do not recommend anyone who models INSW to add $10 million to your TCE revenues. You've likely already captured this in your TCE estimates. We are just pointing out that there is added value in the pools versus historical performance. So this is another synergy benefit of the merger.

Now let's move to Slide 12 for our cash bridge. Moving from left to right, we began the fourth quarter with total cash and liquidity of $173 million. During the quarter, our adjusted EBITDA was $12 million. Equity income from JVs decreased cash by $5 million and the cash distributions from the JVs were a positive $3 million from the FSO JV.

We expended $33 million on drydocking and CapEx. We also paid $10 million in installments on our dual-fuel LNG newbuilds. The liquidity enhancements totaled $91 million, which included proceeds from vessel sales net of debt repayments, proceeds from sale leaseback transactions net of debt repayments, the paydown of a swap in connection with the Sinosure facility and voluntary payments on our revolving credit facilities. I'll discuss several of these financing initiatives in just a minute.

Finally, taking into account the $53 million of debt service, the $20 million quarterly dividend and $19 million impact from working capital and other changes, the net result is that we ended the quarter with approximately $99 million in cash and a $140 million undrawn revolver, yielding total liquidity of $239 million at December 31.

Before turning to Slide 13, I'd like to briefly touch on the specifics of our fourth quarter balance sheet and liquidity enhancements. As Lois mentioned, we have implemented a fleet optimization program, which yielded net proceeds of $32 million in Q4.

Additionally, as discussed in our previous earnings calls -- last earning call, we entered into a lease financing arrangement for the 6 VLCCs that had collateralized our Sinosure credit facility. The proceeds of this refinancing were used to prepay the $228 million outstanding loan balance under the Sinosure facility and, therefore, increased our overall liquidity by approximately $150 million, $100 million of which was used to repay our existing revolving credit facilities.

Lastly, we refinanced 2 MRs and 2 Aframax through sale leasebacks. 3 of these transactions were completed in 2021 with net proceeds of $27 million and the fourth was completed in January.

Now I'd like to turn to Slide 13 to discuss our balance sheet a little more. As of December 31, we had $2.3 billion of assets compared to $926 million of long-term debt. In addition, as mentioned, we had $140 million of revolving credit facility remained as undrawn as of December 31.

As you can see on the bottom left of the slide, our net debt to total capital stands at 46%, while our net loan to value of our conventional fleet stands at 45%. The portion of our debt that's fixed or hedged is 37%.

Since year's end, I'd like to highlight that we completed a sale leaseback of a 2010 built MR in January, which increased our liquidity by approximately $6 million.

It should also be noted that our final payment in the forthcoming LNG dual-fuel newbuilds was paid in February. These newbuildings are now fully financed in the previously announced lease financing structure with BoComm. This finalizes the financing of our current newbuilding program with vessels that are built to better the environment and are attached to a 6 -- 7-year earnings contract with Shell and, as noted, in a quality financing arrangement.

Turning to Slide 14. We look at our debt as of 12/31, reflective of the completed merger. As you see, our total debt balance is approximately $1.12 billion with $140 million of undrawn revolving capacity. As we continue to maintain a healthy balance sheet, our debt reflects a highly competitive cost of capital and long-term maturity profile with the vast majority of debt due in 2024 or later.

That concludes my remarks. So I'd now like to turn the call back to Lois for her closing comments.

Thank you, Jeff. On Slide 15, we detail Seaways' investment highlights. Seaways continues to execute our disciplined and balanced capital allocation strategy, which enables us to create significant and enduring value for our shareholders.

Since our spin-off in 2016, we have transformed the company into the largest U.S.-based diversified tanker company. We've been acting decisively to capitalize on attractive growth opportunities. Complementing the $900 million of vessels that we purchased at cyclical lows, which was completed without issuing any equity, our merger with Diamond S last year doubled our net asset value, tripled our fleet size and significantly enhanced our scale and our earnings power.

Returning capital to shareholders remains a central component of our balanced approach to capital allocation, and we're proud to have returned $95 million to our shareholders over the last 2 years in dividends and repurchases.

Our commitment to upholding best-in-class ESG standards is another of Seaways' key differentiators. We believe that the diversity and the independence of our Board, our commitment to the environment as demonstrated by our dual-fuel VLCC newbuilding orders and our status as the first shipping company to secure sustainability-linked financing, provides significant benefit to our customers, our shareholders and our lenders.

We have been ranked in the top 3 in the Webber Research ESG rankings for the past 4 consecutive years. Supporting both our ESG initiatives as well as our focus on meeting the exacting requirements of leading energy companies is our hybrid operating model, focused on safety first and flexibility. At the core of this model is an unrelenting commitment to adhering to stringent safety and environmental standards, which is made possible by Seaways' dedicated seafarers.

We rely on our seafarers to ensure the safe, reliable and efficient transportation of energy cargoes for our customers, amidst the global pandemic, the ship's crew has done a remarkable job adhering to the highest level of not only safety, but professional standards. We're particularly proud to share that we have reached the milestone of vaccinating over 83% of our 2,500 seafarers. This is a number that we are working to increase every day.

In terms of our operating model, our sector-leading commercial pools, many with INSW ownership, such as Tankers International and Panamax International joint venture, provide a competitive advantage to Seaways. TI is one of the largest VLCC pool operators in the world and, as a founding member over 20 years ago, we have taken active role to expand the global competitiveness of the pool. In 2020, we established TI's New York City office in Seaways' headquarters.

Another hallmark of Seaways' success has been our focus on maintaining balance sheet strength. We continue to take steps to enhance our balance sheet and our capital structure with one of the lowest net loan to asset values in the industry as well as liquidity of $240 million. We are well positioned to operate in the diverse tanker environment.

I'll end my remarks by briefly discussing Seaway's significant upside potential to improving rate environment. As mentioned earlier on the call, we see a number of positive market developments that could translate to a stronger rate environment for us in the second half of 2022.

Based on our sizable fleet of 84 conventional tankers, we have significant operating leverage to capitalize on this. I note that every $5,000 per day improvement in the time charter equivalent daily rate provides over $150 million to incremental EBITDA or about $3 earnings per share per annum.

Thank you very much, and we would now like to open it up to questions.

(Operator Instructions) We take our first question from Randy Giveans from Jefferies.

First question, just around current rates, right? We're seeing some crazy jumps in the headline average rates, but most of those are being skewed by just a couple of kind of Black Sea routes. So are you doing any cargoes in or around Russia, Ukraine? And I guess for INSW more specifically, what levels of rates are you booking vessels at today for your various asset classes?

Okay. So let's just take the first of your questions, Randy. And since Russia invaded the Ukraine on the 24th, so for the last week, at International Seaways, we have not booked any fresh cargoes loading any Russian ports. And this is a very fluid situation. You're seeing sanctions and trading change every day.

So the first and foremost at Seaways is -- number one is safety and then making sure that we're navigating the legal labyrinth out there. For sure, you have to make sure that you're able to receive payments, and we understand that there are cargoes now where the Urals are trading at in the Black Sea a $20 discount and some of these cargoes are going wanting. So we are simply monitoring this situation extremely closely with each of our pools.

Of course, all of our ships are effectively working and we have seen -- if I take it kind of from the top, we have seen an increase in VLCC rates and you're looking at trade somewhere around $25,000 per day on that sector.

When you come down to the Suezmaxes and Aframaxes, this is where you're starting to see a much broader differentiation between those that are potentially trading in the Black Sea and those that are not. But even on non-Russian cargo trade -- Derek, what would you say -- I'm going to have Derek Solon, our Chief Commercial Officer, just share a little bit of what you're seeing.

And one thing, Randy, I just want to -- before Derek jumps in there and shares. We're seeing this change on a daily basis and realize that some of the high levels that you see, it's very thin trading. So I think it's just very important to keep in mind the highly changeable situation. Derek?

Thanks, Lois. So Randy, can you hear me?

Yes, I can.

You're okay. Go ahead.

Thanks, Randy. So -- yes, I mean, as Lois touched on, I think the uncertainty in the market, the risk in the market, because of the Russian aggression in Ukraine, has led to all the markets coming up from their low levels from prior to the invasion.

Like Lois said, fixtures out of Russia have seen the real, real toppy rates, kind of these headline grabbing rates. But even on the back of that, like Lois said, the VLCCs have come up to around $25,000 a day. The Aframaxes in and around the Mediterranean are earning a lot more money today, right, $30,000-$40,000, and that's impacted the Afra sector across the board.

Same with the Suezmax sector, right? That's coming up -- that sort of pull of that Russian risk, has even the West African markets coming up to around $20,000-$30,000 a day. Whereas before, we were fixing in kind of 4-digit numbers. So this is kind of giving a lift to all ships in -- within the Clean side.

Does that give you some color, Randy?

Yes. So we're definitely seeing some strengthening, which is understandable. But clearly, we can't just use average Suezmax at 80. Well, that's because Black Sea is 200. So of course, the rest of the world is going to look more elevated. Okay. That's fair.

And then I guess following up on that, just a bigger picture question. In terms of disruptions from Russia/Ukraine, clearly, you said yourselves have not loaded any cargoes in and around that region for the last, I don't know, week or so. Any thoughts on potential implications if this conflict persists, right, for weeks, if not months? What would be the kind of impact to the tanker trade in your view?

I think we're starting to see it. WTI had been discounted to Brent like $4-$5 per barrel, which was kind of a reestablishing of that. And now you see that blow out. You see Brent this morning at $113 and WTI at $112. So I think you start to see demand for Western-based barrels just really spiking.

And it's going to upend trading patterns where we -- like the U.S., if we can come on with another 1 million barrels a day this year and let's say that this looks like something like 300,000 barrels a day per quarter, where do those barrels go? And I think you're going to see Europe fighting for them, and we've also seen the reemergence of some of these longer haul trades, which had really been missing from the market for some time.

So you start to put inefficiency into the marketplace. And all the crude trading and the product trading is a bit upended and you start to see trades reemerge that haven't been there for some time. So we look at it that -- I do believe it can strain the oil supply. But at the same time, it incentivizes everybody in non-OPEC and even the Saudis. OPEC+ came out and said they're going to do their 400,000 barrels per day. I do believe there will be pressure to increase those volumes.

That's fair. And then, yes, I certainly don't want to make this call about Russia. So to finish on a more positive note, your balance sheet is in great shape. It keeps getting better. I guess what is the plan for some incremental liquidity, either from additional vessel sales or what is now and should be profitable rates in the coming quarters?

I know you mentioned debt repayments. So is that the priority? And then obviously, great to see the ongoing share repurchases, is that also likely to continue as your share price clearly remains undervalued here?

Yes. So for sure, return of capital to shareholders remains a priority, Randy. I definitely -- we're having the constant conversations around looking at the fleet and when you start to tip into a market that has the type of volatility that we're seeing right now, these turn into real cash earners in the fleet.

So we look very carefully. We still continue to look at pruning vessels. But now the scales may tip the other way, where you're really making a lot of cash on these ships. So I would say that from both the priority of return of capital to shareholders as well as the vessels. And then I would turn to Jeff to see if you'd want to add any other comments.

I'd just underscore what Randy mentioned and you just said. We did a tremendous job expanding the fleet last year. So we -- and including the merger with Diamond S and the dual-fuel new build. So we feel really good about how we have allocated enough capital to the fleet growth at the bottom of the cycle.

Not to say, there is not the occasional really attractive deal that will come up, but the priority is going to be debt repayment, as you said, but that's kind of taken care of in our scheduled amortization profile, and then returning cash to shareholders. At this point, there's nothing more accretive that we could do than buying shares. So this remains a very high priority.

We take our next question from Omar Nokta from Clarksons Securities.

Yes, I thought Randy asked a pretty good series of questions covering everything. But I appreciate your comments about that.

But I did -- maybe just a couple of follow-ups. Maybe first, clearly, we've seen, as you mentioned Lois, rates have spiked here over the past several trading days. But your performance at least thus far into the quarter from your slide on the LR1s and the Panamaxes of $22,800 is pretty substantial. Any -- what was driving that that led to such a big increase in earnings power there?

That sector, Panamax International, that joint venture, as you know, is something of a differentiator for us. I mean, that's why we're particularly proud of picking up this opportunistically via Seaways Eagle and then flipping out an MR of 1 year older. And we also picked up over the course of Q4 -- Q3-Q4, 3 time charter-ins to really kind of bolster our position in that fleet.

Those vessels tend to trade a lot of fuel oil as well -- DPP in North and South America. And that particular trade -- the Caribbean was probably the stronger basin to what you've seen on the bigger sister ships -- the [VEs] and the Suezmaxes were under more pressure. And I think the Caribbean performed better in the first quarter and Ecuador has come back on with more barrels in January where they had been kind of affected negatively on their volumes in Q4.

I mean, the Ecuadorian barrels are staying closer -- staying within the hemisphere as opposed to going increasingly on bigger ships Transpacific, so that's helped the Panamax side.

And different topic, and Randy asked this. Just Jeff, about the liquidity. Clearly, you tapped into a bunch of different new sources of capital and that -- the big sale leaseback from -- on the VLCCs has unlocked a lot of cash.

I guess, how do you feel -- I guess, at this point, clearly, you're in a much healthier and stronger position? I mean, you've generally been in a good position, but now even more so and with earnings now coming up, potentially even stronger liquidity. But do you feel there's more to do on unlocking liquidity/doing more debt refinance?

And then the second, I guess, would be -- related to that is, any thoughts about the FSO joint venture? Any discussions there? I know it's brought up quarterly almost, but with that contract starting up soon -- that 10-year contract starting up soon, any securitization of that revenue stream on the horizon.

So before Jeff jumps in there to answer that. I would start with -- we noted it on the call and the remaining CapEx payments or newbuilding payments on the 3 VLCCs are fully funded at this juncture. So I think that's one thing we have no unfunded newbuilding payments on our horizon. So that's one thing that -- just one of the things the team did in 2021 to really kind of set us up for 2022. And then I'll turn to Jeff to answer the question about is there more to be done on debt and refinancing. Go ahead.

Just to give you a little window of the way things work. I mean, what we did is immediately post-merger in like July of last year is to say, what -- we selected a program of financings and refinancings that would have the dual benefit of diversifying our sources of financing, which is important.

Because as great as our banks are -- and we really appreciate the support from the traditional shipping banks -- we know you have to source more financing from the East and build the relationships there. And it also enhanced our liquidity when we did a number of those financings at a higher loan to value.

So we had -- we picked a -- we selected a program and we basically executed the program. So we've got 2, I think, small transactions or smaller ships that have sort of remained, they'll probably have to be announced at the next quarterly call. But that's sort of the completion of the program, Omar.

So it doesn't mean we're not always looking and thinking is there something else. We certainly can look at optimizing our balance sheet, whether that's the secured facilities we have. There's always things that can be done just to make things a little better. But basically, we put in place a program and we executed the program. So I think we're pretty satisfied with where we find ourselves now.

And on the FSO, I'll say is just the same as last quarter and the quarter before that is that, it's under close evaluation with our partner, and it's a very good asset that gives very good cash flow to us and our partners. But if we can find an appropriate monetization that will benefit our shareholders and fully reflects the correct value, we expect to do that. But nothing -- I can't tell you more than just it continues to be a priority of ours to [regard] that along with our partner, so stay tuned.

We have a question from Ben Nolan from Stifel.

You guys -- on the release here it was very helpful sort of highlighting a year into -- close to a year into the Diamond S transaction, the effect of synergies. And I mean there's real money as you point out. My thesis into the deal, Lois, very constructive on it. And I thought that, hey, more liquidity, more free float was really going to help close the gap from a relative basis with respect to your peers.

So far, that hasn't really, I don't think, at least as much as I thought it would have. I don't know, Jeff, if you can take a Monday morning quarterback and look at this and say, okay, well, it has not happened yet? Or how are you thinking about sort of that thesis now that we're a year into the transaction?

So Ben, I think that -- I would go with that, it's starting to happen. And the market is starting to happen. So I think that once the tanker market heads into recovery, everybody, investors take a much closer look and then start to differentiate and get interested in tanker stock. So I think that we are just starting to see those types of benefits that will come through in 2022.

Absolutely, Lois. And just would say it this way, Ben, take a look at the average daily trading volume. That's step one. It was in the 300,000 shares a day level more or less premerger, it's over 500,000 and that's depending how you measure it.

Yesterday it was 1 million, because of the volatility.

But I'm looking not at just the last couple of days, but it's like 30-day average, so what comes up on my app. So that's step one, there is more liquidity in the stock. And then I've always said this, it's what Lois just said, you don't get to rerating your stock typically at the bottom of the market.

So what we would expect, and based on -- doing this for a lot of years, what I would say to expect is that when all the stocks move significantly, a stock like ours that is substantively more highly discounted than, in our opinion, we ought to be -- you're saying the same, thank you -- we'll move -- we would logically move more.

But it's easier to get that rerating that closer move to, in this case, we typically talk about [NAV], that's going to happen more easily when everybody is moving up. That could well be the case pretty soon. So we are [starting to take that Ben]. And I don't -- I think the thesis is -- we're still bullish on the merger and the benefits of the merger, and we're patient.

Well, I mean, clearly, from a profitability standpoint, there are benefits. Just I'm just -- when does that get recognized? And I think you guys both made good points there.

Switching gears a little bit, my second question. This is just something like occurred to me, you were talking about earlier, Lois, you are recycling the Panamax, have done a number of those already. Although are effectively overseeing the process yourself from the sound of it, which making sure that all of the environmental restrictions and regulations and everything are done as they should be.

Just out of curiosity, is there a big monetary gap between doing that and then sort of doing it the maybe less scrupulous way of so just selling it to somebody who maybe doesn't follow those same standards?

Ben, the yards that are Hong Kong compliant are all in India. And that is where we have been selling the vessels. There is a differential. It is $50 per ton, probably maybe a little bit more than that. And we think that's well worthwhile to make sure that the hazardous materials are being taken care of properly and disposed of with quality vendors and that there's a floor underneath these guys when they're working and dissembling the vessels, right.

So for that, we think that actually, the Hong Kong Convention is driving actual change in safety on the ground and increased certifications to actually improve the conditions of the recycling of these vessels.

The next question comes from Magnus Fyhr from H.C. Wainwright.

Just a couple of questions. The vessel OpEx jumped in the fourth quarter. I know you had a very busy drydocking quarter. Can you provide some breakdown on what was capitalized versus expensed? I know you had laid out the drydock in expense versus the CapEx.

Yes. You're clearly -- Magnus, you're looking at the appendix and indeed, in the fourth quarter, it was a very heavy drydocking and ballast water installation period. And you'll notice, we've given you the -- also 2022, where in this -- what had been a very low rate environment in Q1 and into Q2, that's where we have our heavy drydock in CapEx.

As far as what is actually capitalized, I think I might have to have Jeff take that on an offline to give you an exact breakdown of that unless you're able to do that, Jeff, just deferring --.

Well, I mean, we have a certain amount that all drydock and CapEx are capitalized, they are not part of OpEx, so doesn't really break them out. And then later, depreciated, but -- so there was no change specifically.

Ballast water is capitalized over the remaining life.

Exactly. So I think all you're seeing is just a heavy CapEx period in Q4 and there were some expenses in the quarter that you get on a quarter-by-quarter basis, sometimes a little variation in expenses. But I don't think anything systemic.

No, I just want to -- on the OpEx, should we just assume that the difference there was mostly drydocking or on the jump in OpEx I mean you provided guidance for 2022, which was significantly lower than the OpEx in the quarter.

Absolutely. We're going to hear from Bill Nugent.

Yes. There are some of the spares that we consumed during the drydock periods. Our practice has been to include those in OpEx. And I think with the number of dockings that we saw and the ships coming into the fleet, you'll see a pop in OpEx as we get some of the practices and policies between the 2 organizations as we merge, cleaned up. All right? So you'll see a little bit of a jump there. And I really think that's where the OpEx pop came from.

But it's a short term.

All right. And you laid out the 2022 drydocking schedule. You also painted a pretty bullish picture of the market. I guess, the 3Q drydockings, how do you feel about them? And also how do you think about the seasonality this year playing out as far as the market recovery? I know there's a lot of moving parts with what's going on now, but just get your thoughts on that.

Yes, lots of moving parts on the market recovery. But I think that -- the number that I gave there of refinery runs increasing by 4 million barrels a day from March to July, I think is -- really tells the story where this is a year where you're just seeing the demand increasing. That was a number that came from [RICE] data or projection.

And I think that's just very significant where you're just seeing that demand pull coming. So you have your seasonality and you're in a year where demand is increasing each quarter. And I think that is what is going to really drive the tanker market recovery. I guess that's kind of where I would leave that.

And just last question, a follow-up on that. You've been very busy with your fleet optimization program. And I guess, are you pretty -- it sounds like you're pretty happy with the fleet now you have significant operating leverage through the vessels that you have working in the spot market. Any thoughts on chartering in vessels or do you think you're pretty happy with the operating leverage that you currently have?

I mean we like to opportunistically bring in vessels into the fleet, and that's -- where we really did that is where you saw us dispose of those older Panamaxes. We loath to see them go, and then we were happy to bring in 3 time charters as well as purchase that Seaways Eagle, right. So really just kind of filling back in there in that pool in a place where we have high confidence that we're going to have differentiated earnings.

And just one last question, if I may. On the merger, you're more than half a year into it. And what's your -- the most positive surprise and the negative over the last 6 months and where do you think you can improve on that?

I think our most positive -- and I wouldn't say a surprise, but just really pleasurable is integrating the teams, and to see the high level of quality from the commercial, operational, investor relations all across the finance space and just really accounting. I mean, bringing these teams together.

And, knock on wood, our external auditors said, the smoothness of this merger, they have not seen in their career, which is multi-decade. So that just really pleases us very much. I think negative surprises, I mean, there's always things that end up being more challenging or --.

It's hard work.

It's hard work. Its hard work. That's what I would say. It's hard work. That doesn't surprise us, and we kind of like hard work, so that works for us.

You know what's great is we're here at the office -- we're in New York and all other offices opened up on an expanded basis, including what we call legacy Seaways people and legacy Diamond S employees here together literally for the first day, and it's just super. It's really, really good to see the fruits of this integration, bringing people together under one roof, so we sit here in New York. So we're really pumped.

The next question comes from Liam Burke from B. Riley.

Lois, understanding there are lots of moving parts as we stage first quarter through the second half of 2022. In terms of your fleet, do you see any more need for any kind of adjustments in the fleet as you see the recovery in the second half of '22?

Let me take that, Liam. Really, no. We feel really good about the fleet as it's come together across the various sectors. We have strength in large crude, [deals] in Suez are pretty interchangeable commercially. So we have a strong position there. Obviously, we have a very strong position in MRs now with the Diamond -- legacy Diamond S fleet. And the niche LR1 Panamax fleet that we discussed on the call, we feel really good about it.

So I think that -- and most notably, the augmentation we'll have from the LNG dual-fuel newbuildings that are coming basically a year from now, but it's going to be soon. So we feel -- it doesn't mean we won't find other moves to make. We're always looking, always open. But we feel like we put ourselves in a pretty good position to take advantage of the tanker recovery and rally that's coming.

Just to touch on that, Jeff, then. I mean you talked pretty specifically about your capital allocation, but when you're talking about you can make the moves if you see them, what do you see out there, I mean, are there potential opportunities?

Look, there's always something, so that's why we're always looking. But I would note that vessel asset values are significantly higher now than they were a year ago. That's why it was important to make the moves that we made when we did.

The cost of the dual-fuel LNGs, for example, was $96 million each. That today would be 15% higher. So that's the challenge in looking at that other assets today is you're going to have to really scratch to find the kind of return that we found by doing this earlier.

That said, you get the opportunities like the one where the lowest for the Eagle that's going to go into that Panamax International pool, the returns pencil out for that one, especially being able to do a swap where we'd take one in and send one out at the same time. That's a particularly creative transaction, we think.

But by and large, we'll evaluate -- I mean, the calls come in. Derek is very busy, he's always fielding and Lois fielding calls. There's always something to evaluate. But we're pretty happy with where we are.

We have no further questions. So I'll hand back to our speaker team for any closing remarks.

We'll just say thank you very much for being with us here on our first day back in the office, and we look forward to speaking with you, the analysts and investors and potential investors in the quarter and the year as we go forward. Thanks very much, operator.

Thank you all for joining. This now concludes today's call. Please disconnect your lines.